Will Gas Prices Keep Dropping?

Kiplinger’s latest forecast on the direction of energy prices

a hand holding a gasoline hose that is pouring out fuel in the shape of a dollar sign
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Gasoline prices finally stopped falling, after a months-long stretch in which the national average price of regular unleaded dropped from one day to the next. After peaking at slightly over $5 per gallon, the national average price is down to $3.73 per gallon. That includes a slight increase from a few days ago, as the summer price collapse leveled off. However, more savings at the gas pump lie ahead, we think.

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The recent decline in stock and bond prices has also hit commodities, including crude oil and gasoline futures contracts. Last week saw both of these drop sharply on concerns that the global economy is heading into a period of weak growth or even outright recession. That’s bad news for investors, but good for drivers. Unless something causes crude oil to spike again, we look for the national average price of regular unleaded to fall toward $3.50 per gallon in coming weeks. That’s still not cheap; a year ago at this time, the average was $3.19. But for cash-strapped consumers facing higher prices for most goods and services, saving a little at the gas pump is a small victory. Unfortunately for truckers, diesel prices are falling much more slowly than gas prices are, due to tight supplies of diesel. The national average of $4.90 per gallon is down a nickel from a week ago, but still painfully high. That adds to the cost of virtually everything consumers buy, since most goods travel by truck or train at some point on their journey to store shelves.

As we noted, oil prices are under downward pressure on economic worries. Benchmark West Texas Intermediate crude has fallen to $80 per barrel in recent trading, down from over $130 at its peak in late winter, when Russia first invaded Ukraine. Concerns that sanctions on Russian energy exports would cause global oil shortages have given way to concerns about global oil demand weakening due to slowing economic growth. We look for WTI to stay below $90 per barrel, and perhaps fall below $80 if those economic risks worsen. However, an all-out plunge in crude prices seems unlikely. OPEC has signaled that it will cut production to keep oil prices from falling too much.

Natural gas prices are also down in recent trading, reversing a hefty summer run-up. The benchmark gas futures contract was recently at $6.64 per million British thermal units, down from a peak of over $9 not long ago. Again, concerns about the health of the global economy are weighing on prices. But note that, even after the recent decline, U.S. natural gas prices remain well above where they were a year ago, and could shoot higher this fall or winter if colder-than-normal weather causes heating demand to soar. Europe’s appetite for exported U.S. gas will remain extremely strong, as European governments scramble to replace lost Russian gas imports. Thus, we look for natural gas prices in the United States to be much higher this winter than last winter, with the possibility of sharp spikes during cold snaps.

Jim Patterson
Managing Editor, The Kiplinger Letter

Jim joined Kiplinger in December 2010, covering energy and commodities markets, autos, environment and sports business for The Kiplinger Letter. He is now the managing editor of The Kiplinger Letter and The Kiplinger Tax Letter. He also frequently appears on radio and podcasts to discuss the outlook for gasoline prices and new car technologies. Prior to joining Kiplinger, he covered federal grant funding and congressional appropriations for Thompson Publishing Group, writing for a range of print and online publications. He holds a BA in history from the University of Rochester.